Outsource

Pick up just about any business magazine or newspaper and you are sure to see an article on the topic of outsourcing. There are many arguing that outsourcing jobs to other countries is taking jobs away from people of this country. This is a major concern to most; however, this is not the topic most under debate in most organizations today. In just about every major company, upper level management is meeting on how to increase the value of there company. Outsourcing is the topic under debate. Top executives are researching this topic and whether they should make (in-house) or buy (outsource). I will be examining this debate by looking at the different types of outsourcing. Also , I will be examining the problems so many companies have with this decision and look at a strategic sourcing model that can aide them in making this decision. By the end of this paper you will have a good understanding of the make vs. buy decision but I will not be able to give you an answer as too which is the best decision. It will be up to you to implement the tools and knowledge that I have made available to you which will help you incorporate the best sourcing decision for your company.

Outsourcing is the contracting out of a company's in-house function to a preferred vendor with a high quality level in the particular task area. Outsourcing is one of the fastest growing trends in business. Large- scale organisations such as Telstra (especially for their Internet and Pay-TV divisions) have latched onto outsourcing due to the almost immediate opportunity of savings and quality improvement. Outsourcing can impact many elements of an organisation in a positive or negative manner. Areas such as structure, corporate culture, cost centres and labour have the most tendency to react to outsourcing developments.

Employees of organizations don't benefit from outsourcing as they are at a risk with becoming redundant. This occurs as another group outside the organization who have similar skills and competencies that can perform the same tasks replace existing workers. This treatment of employees can trigger a collapse in confidence and morale from all other employees throughout an organization as they view fellow employees leaving due to job replacements. Therefore in the future lasting employees will feel uncomfortable in an organization that is constantly outsourcing with fears of loosing their job. In order to prevent this morale downgrade management may choose to cross - train redundant employees so they can fit in another suitable position, where it may for expansion or increase labour productivity.

Another aspect that may be impacted by outsourcing is the hierarchical structure. If a certain department is run from outside such as Human Resources, i.e. recruitment is controlled by an outside body, this makes the 'HRM' division to be removed from the organization and hence its formal structure. Advantages of clearing a structure can give senior management the prospect of re-using and expanding into locations that have been previously outsourced. The departmentalisation of the structure might have to be altered to correspond with the changes caused from outsourcing.

The reason why an organisation can reduce costs when going ahead with outsourcing is because it can call upon the outside body to perform a task on a 'need basis'. This means an organization can call upon a contracted when the need be. Re-visiting the HRM division being outsourced, this division is working away all the time with unnecessary wages being paid. An organization does not need people in charge of obtaining recruitments all the time so by outsourcing recruitment, money can be saved. Another consideration is the redundancy of workers, if employees are dismissed, here wages can be saved. If the organization locates a contractor that is cheaper than redundant workers then the net money situation is favourable for the organization. Often contractors and specialised in their particular task, so the factor of improved quality and reliability are driving forces when considering outsourcing.

Outsourcing does not eliminate decision-making and the need for managers to control. Rather, managers must continuously monitor and evaluate the outsourced functions to ensure that partners are as a whole beneficial to the organisation.

It Outsourcing

INTRODUCTION

Companies are increasingly outsourcing the management of information technology (IT) for reasons that include concern for cost and quality, lagging IT performance, supplier pressure, access to special technical and application skills, and other financial factors. The outsourcing solution is acceptable to large and small firms alike because strategic alliances are now more common and the IT environment is changing rapidly.

REASON TO OUTSOURCE

Although the mix of factors raising the possibility of outsourcing varies widely from one company to another, there are a series of themes that explain most of the pressures to outsource.

First of all, general managers' concerns about cost and quality drive outsourcing. The same issues such as getting existing services for a reduced price at acceptable quality standard came up repeatedly.

Second, failure to meet service standards can force management to find other ways of achieving reliability. It is not atypical to find a company in which cumulative IT management neglect eventually culminated in an out-of-control situation the current IT department could not recover from. Management can see outsourcing as a way to fix a broken department.

Third, a firm under intense cost or competitive pressures, which does not see IT as its core competence, may find outsourcing a way to delegate time-consuming, messy problems so it can focus scarce management time and energy on other differentiators. Next, several financial issues can make outsourcing appealing. One is the opportunity to liquidate the firm's intangible IT asset, thus strengthening the balance sheet and avoiding a stream of sporadic capital investments in the future. Also, outsourcing can turn a largely fixed-cost business into one with variable costs. This is particularly important for firms whose activities vary widely in volume from one year to another or which face significant downsizing.

THE BENEFITS FROM OUTSOURCING

Outsourcing has identified numerous potential benefits.

Financial benefits from outsourcing included rapid funding of new systems development and economies of scale and scope. As consolidate infrastructure through IT outsourcing, a firm can experience cost reductions in hardware and software licensing, facilities, and support headcount.